Are Family Trusts replacing Self-Managed Super funds?

We are seeing a renewed interest from professionals for Family Trusts. Family Trusts built on our website have surged 38% in the last 12 weeks. Conversely, SMSFs have dropped by 23%.

On speaking with professionals it appears that clients are losing confidence in SMSFs because of so many changes in legislation. Family Trusts are seen as a viable alternative. I’m not sure this is true. SMSFs are still a tax free environment. Particularly when you consider Australia is one of the highest taxed countries in the world.

While amendments were made to SMSF legislation 19 times in the past 3 years, trusts have barely changed since King Henry VIII’s Statute of Uses 1536. (To get around this law a Settlor starts the trust.)

Family trusts are simple to operate, have great tax concessions and, in contrast to SMSFs, are unregulated. You don’t have to wait until retirement to access the funds. Asset protection is high and there are plenty of tax planning opportunities. The trustee can also borrow money to purchase property (in contrast to convoluted Limited Recourse Borrowings).

However, Family Trusts are not for everyone. The disadvantages? Distribute to the beneficiaries each year or suffer 49% tax; they are complex for negative gearing; and land tax is payable from the first dollar of NSW land. Assets are not protected from the gaze of the Family Court – however, this is also the case for Superannuation.

Talk with your professional about the future costs of operating both structures. The beneficiaries of the family trust might have high individual tax rates, which case operating a Family Trust may not be “worth it”.
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In the Family Court, SMSFs are more secret than Family Trusts?

You are breaking the law if you do not give full disclosure to the Australian Taxation Office (ATO) and the Family Court.

However, sadly, the Family Court has seen some enthusiasm for a divorcing person to use the complexity of Self-Managed Superannuation to underreport their SMSF assets.

That all changed on 1 April 2022. Now you can go straight to the ATO. This is to obtain details of your former partner’s superannuation information. This enhances the visibility of superannuation assets in family law proceedings. It is harder for parties to conceal their superannuation assets.

Previously, in family court proceedings the process of getting full disclosure and understanding of the SMSF assets has been convoluted and drawn out.

Family lawyers tell me that often the legal fees required to pursue an ex-spouse’s superannuation cost more than the value of a split comprised in a property settlement.

However, in my personal view, what is still to be addressed is the different procedures that retail and industry superannuation funds use in their ‘flagging’ and ‘splitting’ processes. I have been practising in superannuation since 1988. And I still find it complex. The process for family lawyers must be torturous and frustrating.

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If you have any further questions please contact us. We are a law firm so we can give legal advice.

Dr Brett Davies, CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors

National: 1800 141 612
Mobile: 0477 796 959
Email: brett@legalconsolidated.com